By Geoffrey Smith
Investing.com -- Crude oil prices drifted lower in early trade in New York on Tuesday, ahead of a key update on the state of the U.S. oil market from the American Petroleum Institute.
By 9 AM ET (1300 GMT), U.S. crude futures were down 1.0% at $41.17 a barrel, while the international benchmark Brent was down 0.4% at $43.72 a barrel.
Gasoline RBOB Futures were down 0.3% at $1.2410 a gallon.
Risk assets in general were trading cautiously, mindful of the large gap between the Republican and Democrat proposals as regards the next round of fiscal measures to support the U.S. economy through the Covid-19 crisis. The two parties have only four days to negotiate a compromise before the existing level of enhancement for unemployment benefits (currently being drawn by over 16 million Americans) expire.
The API will release its weekly data on U.S. crude oil stocks at 4:30 PM ET (2030 GMT) as usual. Expectations are that the government data due Wednesday will show a draw of 2.09 million barrels.
Demand concerns continue to push prices down as a rising second wave of Covid-19 infections across the world threatens to disrupt global travel patterns again. U.S. airlines have adjusted their fall schedules, while European governments are edging toward new restrictions on travel as the decision to allow the summer tourism season to proceed more or less unchecked leads to spikes in new cases everywhere.
Analysts at consultants Rystad Energy now expect the market to swing back into surplus from August, as the planned increase of 2 million barrels a day of output from the OPEC+ bloc of producers kicks in.
“OPEC’s experiment to increase production from August could backfire as we are still nowhere near out of the woods yet in terms of oil demand. said Bjornar Tonhaugen, Rystad head of oil market research, in e-mailed comments. “The overall liquids market will flip back into a mini-supply glut and a swing into deficit will not happen again until December 2020.”
Against that backdrop, one of the few factors supporting the price of oil right now appears to be the weakness of the dollar. A weak dollar improves the terms of trade for oil importing nations, sustaining consumption there.
The dollar on Monday hit its lowest level in 22 months against a basket of developed market currencies – with the yen and euro notable beneficiaries – but is still relatively highly priced against emerging currencies, according to Robin Brooks of the Institute for International Finance, a Washington-based banking industry group.